Discuss what is meant by “the liability crisis in public accounting.” How did the Federal Litigation Reform Act of 1995 address this issue?
What will be an ideal response?
ANSWER:
There has been tremendous pressure to turn the audit into a fraud detection mechanism with the auditor to report to the SEC, in the case of publicly traded companies, if management and the board of directors do not take corrective action. Though auditors share some of the blame when fraud is undetected, there have been some inherent problems in the legal system combined with the fact that auditors are seen to have very “deep pockets.” Prior to the Federal Litigation Reform Act of 1995, auditors in both federal and state cases were subject to joint and several liability for damages suffered by third parties who relied on the financial statements of firms attested to by CPAs. Auditors could be stuck with more than their proportional share of judgments. Under the 1995 Act, joint and several liability is not applicable in federal court unless the defendant knowingly violates security laws. The Act replaced joint and several liability with proportionate liability which restricts liability to each defendant’s proportionate share of the damages based upon the judge’s or jury’s assessment of their share of the damages.
You might also like to view...
Which of the following is false regarding the use of an audit checklist for disclosures?
a. It is a convenient documentation format. b. It reminds the auditor of matters that should be considered for disclosure. c. It can be organized to include relevant professional guidance. d. It covers all potential unusual circumstances.
Which of the following statements about African American buying patterns is most accurate?
A. When socioeconomic status differences between African Americans and Caucasians are removed, there are more similarities than points of difference. B. African Americans are not price conscious but are strongly motivated by quality and choice. C. African Americans spend more on products for women and girls, especially in terms of clothing. D. Adult African Americans spend half as much on online services than Caucasians. E. There are significant differences between the buying patterns of African Americans and Caucasians of similar socioeconomic status.
Which of the following is a favorable condition that will facilitate a cultural change?
A. the organization has a huge workforce B. the organization has a long existence C. a dramatic crisis occurs D. a stable leadership exists
A/An ________ would be an example of a location-specific advantage for an MNE
A) patent B) economy of scale C) unique source of raw materials D) possession of proprietary information